Costs and Benefits Associated with QROPS Offshore Pensions

Taking a look at the benefits of transferring a pension offshore and the costs relating to QROPS overseas pension schemes

Since QROPS, or qualifying recognised overseas pension schemes were introduced, it is now more attractive for expatriating Britons to take their pension pots with them when they move abroad, or to benefit from them if they decide to retire overseas.

However, it is not always apparently clear how and why QROPS can be of benefit to an expatriate, and so in this article we’ll lay out the main potential benefits of these schemes, as well as detailing the expenses one may incur in setting up an offshore pension.

By understanding the costs and benefits associated with QROPS offshore pension schemes, an individual can then hopefully determine whether such a solution could be appropriate for them to establish.  At which point they could draw on the services of an international financial adviser to help them decide whether to move their pension, and if so, where to move it to.

The Benefits of QROPS Offshore Pensions Made Clear

One of the key benefits that many cite when it comes to QROPS is the fact that if an expatriate who has been living abroad for five or more years transfers their onshore pension into these offshore equivalents, there is no requirement for the QROPS provider to make any disclosures to HMRC.

This benefit comes into play after five years even if you have only just moved abroad and moved your pension with you.  Until the five year term is up however, QROPS providers have to keep HMRC in the loop about where you invest and/or draw down an income if applicable.

A further significant benefit for many is that you are not obliged and required to buy an annuity with the benefits from your QROPS.  In the UK on the other hand, if you do not buy an annuity with your qualifying pension pot by the time you are 75, you could face up to an 82% tax charge!  Naturally this freedom from this restriction makes an offshore pension incredibly attractive to many expatriates.

A further advantage is the flexibility offered to investors when it comes to the underlying assets and funds that offshore pension pots are invested in.  This can be attractive to those who prefer to have more say in what their pension is invested in.  Additionally, this level of flexibility is extended to all benefit recipients when they begin to draw down on their pension pot.  In theory a pension can be drawn from the age of 50, the entire amount can be taken in a lump sum, or all or part of the pension pot can be reinvested for an income for example. 

Expatriates who are planning on retiring overseas or remaining abroad when they begin drawing on their pension income often find this level of flexibility highly advantageous as it allows them to make the best of whatever financial situation they are in at the time. 

The final advantage of maximum significance, and that which sets QROPS head and shoulders above their onshore pension equivalents, is the fact that upon the death of the policy holder, remaining funds in the pension can be passed on to heirs in a will.  With an onshore pension that buys an annuity, this is only valid for the duration of the policyholder’s life, and any remaining balance is ‘absorbed’ by the annuity company upon death.

The Costs of Transferring a Pension Offshore

The exact costs that you may incur when taking your pension offshore with you and setting up a qualifying recognised overseas pension scheme can be divided into the following three categories, but note that individual amounts payable will be based on your personal circumstances, the actions you take and the QROPS you choose: -

Formation Fee

For transferring your onshore pension into a QROPS you will be charged a formation fee by the financial company that handles the transaction and is responsible for the management and maintenance of the pension scheme.  This can be anything from £500 for a simple transfer arrangement, up to a fee in the early thousands for a more complex transfer.  Your financial adviser should make all fees and charges clear to you up front.

Annual Management Charge

As with many types of investment, you will be liable for an annual management charge for the ongoing investment of your fund.  This will be dependent on the complexity of the scheme and can differ between providers, jurisdictions and the type of QROPS you have in place.  Fees are similar to those mentioned above…and again, it is critical that you are appraised of them by your adviser.

Advisory Fees

These may not be chargeable, they depend on the size of the fund, any potential complexities associated with the ongoing transactions, the source of the transfer value and also the need for ongoing advice.  However, this ongoing advice may be provided for you by your financial adviser either on a commission or a flat fee basis.

Knowing Where to Start and How to Get Advice

QROPS are not complex investment products, however, the decision relating to whether or not you should transfer your onshore pension offshore into a qualifying recognised overseas pension scheme is potentially a complex decision as it is based on your personal circumstances and requirements.  Furthermore, the decisions relating to which QROPS and which jurisdiction bring another layer of complexity to the issue.  Therefore, we strongly suggest you seek out the services and advice of an expatriate or international financial adviser who is complete au fait with the offshore marketplace.  These individuals understand your unique expat situation, they are knowledgeable about which solutions suit expats, and they can work with you on a personal basis and determine which course of action you should take.  To speak to an adviser who covers your region and deals exclusively with international individuals such as yourself, and we will put you in touch.